1 / 15

Michael Landesmann landesmann @wiiw.ac.at

Challenges of Real Convergence Conference on: Ten Years of the Euro – Inspirations for the Czech Republic Prague, November 25, 2008. Michael Landesmann landesmann @wiiw.ac.at. Topics. Real convergence outside and within the EMU: some general remarks

geneva
Download Presentation

Michael Landesmann landesmann @wiiw.ac.at

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Challenges of Real ConvergenceConference on: Ten Years of the Euro – Inspirations for the Czech RepublicPrague, November 25, 2008 Michael Landesmannlandesmann@wiiw.ac.at

  2. Topics • Real convergence outside and within the EMU: some general remarks • Real convergence of the NMS: different patterns of ‚fixers‘ and ‚flexers‘ • What makes NMS different from Spain and Portugal? • The issue of monetary instability and financial architecture – lessons from the current crisis

  3. Topics • Real convergence outside and within the EMU: some general remarks: - advantages outside: exchange rates may remove mis-alignments in case of shocks; otherwise all burdens fall on wage and (more generally) labour market flexibility - advantages inside: mainly escape from currency mismatch problems in case of contagion; ‚real interest rate effect‘ can lead to falling savings rate, asset bubbles.

  4. 1993-2000 2001-2007 GDP per head, real growth annual averages 1993-2000 and 2001-2007, in percent EU-27 countries Source: Eurostat.

  5. Topics • Real convergence of the NMS: different patterns of ‚fixers‘ and ‚flexers‘ - fixers: lower risk premium on foreign borrowing; higher current account deficits, more private sector debt, more fear of currency mismatch in case of contagion; more serious testing of exchange rate regime in current crisis; more liquidity crunch in period of crisis? - flexers: higher inflation rates, lower current account deficits, exchange rate reacted to financial market crisis; formerly appreciation pressures

  6. GDP growth by country GDP growth rates in % Source: wiiw annual database

  7. Current account in % of GDP, 1995-2007

  8. Consumer prices, 2000-2007(Month in the previous year = 100) Source: wiiw-Database

  9. Nominal exchange rates, 1998-2007 EUR per NCU, 1998=100 Ascending line indicates appreciation. Source: wiiw database incorporating national statistics.

  10. Real exchange rates, 1996-2007 EUR per NCU (PPI deflated NCU + EUR), 1996=100 Note: Values over 100 indicate appreciation relative to 1996=100. Source: wiiw database incorporating national statistics.

  11. Average gross monthly wages, total, EUR, 1995=100 Source: wiiw database incorporating national statistics.

  12. Unit labour costs(Austria=100) Source: wiiw-Database

  13. General government deficit, 1998-2006in % of GDP Source: Eurostat.

  14. Topics • A tale of two countries (Spain, Portugal) • What makes NMS different from Spain and Portugal? - NMS: longer experimentation of monetary and exchange rate alignment with Eur-zone; much tighter financial market integration; some economies with sophisticated and robust export structures (more like Spain or even Ireland); problems with fiscal policy – political business cycles - Lessons: beware of real interest effect, household savings, asset price bubbles; real exchange rate and current accounts (hence ‚competitiveness‘) issues do not disappear

  15. Topics • What do we learn from the current crisis? The issue of monetary instability and financial architecture - Differences in the vulnerability across economies: fixers vs. flexers, those with high/low foreign debt/private debt; fiscal recklessness and political business cycles - Contagion transmission through foreign banks; not sufficient condition for stability in credit markets; strict regulation important - On balance: quick transition to full EMU membership desirable

More Related